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Fed minutes show aggressive stimulus to continue

The readout of the Fed’s July 28-29 meeting, published on Wednesday, showed the central bank is considering tweaks to monetary policy that could result in it sticking with aggressive stimulus measures far longer than under its previous rubric. The minutes also showed policymakers concerned that a recovery from the economic downturn triggered by the coronavirus pandemic faces a highly uncertain path.

In recent weeks, the Fed’s steps to counter the economic effects of the coronavirus pandemic have helped lift riskier assets to all-time highs even as it has reduced demand for safe-havens, battering the U.S. dollar. But the minutes, despite the dovish tone, led to a sell-off in stocks and a rally in the dollar.

The U.S. dollar jumped against a basket of currencies on Wednesday, as traders used the opportunity of the Federal Reserve’s release of minutes from its last policymaking meeting to take profits.

 

Analysts said the jump in the dollar on Wednesday reflected profit-taking in some corners of the market, as well as disappointment from traders who expected an even more dovish perspective from the Fed.

“There were some in the market that thought the Fed would be even more dovish overall,” said John Doyle, vice president of dealing and trading at Tempus, Inc. “And I think that is the one thing that caused stocks to sell off in the aftermath, and the dollar to gain.”

“I think that these minutes in a vacuum wouldn’t be enough to cause that move, but that because of where we are at a technical level were seen as a reason to take profits.”

The U.S. dollar index which measures the currency against a basket of six rivals, was 0.84 per cent higher at 92.978, having risen as high as 93.059 before paring some of those gains. On Tuesday, the index slipped as low as 92.124, its weakest since May, 2018, as U.S. stock indexes hit record highs, driven by the Fed’s stimulus endeavors.
Elsewhere in North America, the Canadian dollar earlier in the day had climbed to its strongest level in nearly seven months against its U.S. counterpart, helped by firmer appetite for riskier assets after a record run for stocks on Wall Street. Those gains were retraced following the FOMC release.

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